## Facts

- Balance Dynamics (Michigan) and Schmitt (Oregon) competed in selling dynamic balancing devices for industrial grinders.
- Balance Dynamics’ product used halon gas; Schmitt’s product used mechanical metal weights.
- In 1993, Schmitt mailed a letter to roughly 3,200 customers and prospective customers about regulatory actions against ozone-depleting substances.
- The letter stated that products containing ozone-depleting substances (e.g., halon) were being banned, emphasized Schmitt’s system did not use such substances, and suggested Schmitt’s product as an easy replacement if customers wanted to dispose of halon balancers before a ban.
- Customers contacted Balance Dynamics with concerns that its halon balancer might become illegal; Balance Dynamics discussed the letter with approximately a dozen customers.
- Balance Dynamics determined its halon balancer was not scheduled for a ban under applicable regulations and responded by visiting customers and sending a fact sheet to address concerns.
- Balance Dynamics conceded it had no proof of lost sales or lost profits from the letter; it sought (1) damage-control costs, (2) damages for lost goodwill, and (3) disgorgement of Schmitt’s profits under the Lanham Act, 15 U.S.C. § 1125(a).

## Issues

1. Whether a Lanham Act false-advertising plaintiff may recover reasonable “damage-control” (mitigation) costs without proving actual confusion or actual marketplace damages.
2. Whether a plaintiff may obtain goodwill damages or disgorgement of defendant’s profits based only on literal (or deliberate) falsity, without evidence of actual marketplace injury.
3. Whether out-of-state corporate officers personally involved in the challenged conduct are subject to personal jurisdiction in the forum state, notwithstanding the fiduciary shield doctrine.

## Decision

- The Sixth Circuit reversed in part and remanded.
- The court held Schmitt’s letter was actionable under § 1125(a) because it was at least misleading and had a tendency to deceive regarding the legality and future availability of halon-based balancers.
- The court held Balance Dynamics could pursue recovery of reasonable damage-control costs without showing actual confusion, lost sales, or other quantifiable marketplace harm, once a Lanham Act violation is established.
- The court held goodwill damages and disgorgement of Schmitt’s profits required at least some proof of actual marketplace injury; falsity alone did not justify those monetary remedies.
- The court held personal jurisdiction could extend to out-of-state corporate officers based on their own minimum contacts and personal participation; they were not categorically protected by the fiduciary shield doctrine.

## Legal Principles

- A Lanham Act false-advertising violation may be shown by literal falsity or by a statement that, in context, is misleading and has a tendency to deceive a substantial portion of the intended audience.
- Reasonable mitigation expenses undertaken to counteract false or misleading advertising may be recoverable as damages without separate proof of actual confusion or measurable lost sales, provided a violation is established.
- Monetary relief for injury to goodwill and disgorgement of the defendant’s profits requires some evidence of actual marketplace injury attributable to the challenged advertising; literal or deliberate falsity alone is insufficient.
- Corporate officers may be subject to personal jurisdiction when they personally participate in the alleged wrongful conduct and have sufficient minimum contacts with the forum; jurisdiction must rest on the individual’s contacts, not solely the corporation’s.

## Conclusion

The Sixth Circuit distinguished between mitigation costs and other monetary remedies in Lanham Act false-advertising cases: a proven violation can support recovery of reasonable damage-control expenses without proof of actual confusion or lost sales, but goodwill damages and disgorgement require evidence of actual marketplace harm, and corporate officers may be sued where their own forum-directed conduct creates minimum contacts.


Balance Dynamics Corp. v. Schmitt Indus., Inc., 204 F.3d 683 (6th Cir. 2000)